The Mystery of Rising House Prices......

The immediate answer given by all those involved is "shortage of supply". Owners are just not putting their properties on the market, and those that are are often asking unrealistically high prices, though the chill of recession has jolted more into narrowing the gap between what they ask for (as monitored by Rightmove) and what they settle for (as recorded by the Nationwide, Halifax and the Land Registry).

This is not just a question of sellers being in denial about negative or inadequate equity, though there is a psychological reluctance on the part of sellers to accept a loss. That lack of equity in many homes has a more concrete effect – it means that moving is difficult at a time when lenders are imposing more demanding terms, such as lower loan-to-equity ratios and more conservative multiples of household income. New rules from the Financial Services Authority that tighten up rules for self-certified and other unconventional customers will exacerbate this trend.

Plainly, banks are only really willing to take on the best credit risks: their precarious balance sheets and losses prevent them from shouldering risks that would have been routine three or four years ago. So, perversely, the lack of mortgage finance has actually pushed prices higher by artificially constricting supply.

Second, the waves of repossessions during the property slump of the early 1990s hasn't materialised, and seems to be another perverse product of the credit crunch. Again, such is the fragile state of many bank and building society balance sheets that few want to crystallise losses by foreclosure. One of the reasons why the bad debts being reported by the banks aren't as high as they might be is because they can't afford any more write-offs – so they just let the arrears run. Possibly also because of political pressure, lenders are exercising extreme leniency with wayward mortgage holders. This unprecedented forbearance is blocking another source of ready supply – auction sales from distressed sellers.

Third, there are signs of increased demand. Confidence is better, after the apocalyptic mood of much of the past year or so. And there are those out there who are cash-rich. Very cash-rich. At one end, Russian oligarchs and other wealthy foreigners and investment funds are attracted by Britain's real-estate double whammy – depressed values plus a sharply depreciated pound adds up, in crude terms, to a 40 per cent discount on peak 2007 prices. Tempting, for some, including speculators who buy some of the best real estate in the capital and allow it to crumble or be squatted.

Prices seem back on their long-term trend level now, but there is every reason to think an undershoot may also be possible, as in the past.

Economists are almost unanimous that the bottom of the market has not yet been reached; then again, only a couple of years ago they told us that prices would be flat in 2008 before resuming their upward march this year ...

The property conundrum remains unsolved.